5 buyer mistakes in a short sale

Some buyers are even doing an inspection before making an offer, particularly in areas such as Florida and California where foreclosures and short sales are numerous. While most inspections are done after the initial offer, with the sale contingent upon mutual agreement of remedies, a preoffer inspection allows house shoppers to walk away and find a better buy.

You may wish to call in specialized inspectors to look for expensive problems such as termites, mold and structural damage, particularly if it's a common problem in your area. "Mold gets more expensive to remediate the longer you wait, and it can severely impact your health and the property's resalability," Steinhorn says.

If you note sloping floors or cracks in walls around doors, windows and basement walls, bring in a structural engineer for a full report and repair recommendations.

Then do something not on the inspector's list: Knock on neighbors' doors. They may know something you don't.

"The seller is not there to disclose the crime from last year or the loud music down the block," says Brendon DeSimone, a San Francisco-based real estate agent.

3. Ignoring legal and insurance information

A typical disclosure statement would indicate if a house was in a flood plain or had any unpermitted renovation, Steinhorn says. Because bank-owned properties often sell as is without disclosure, buyers need to do a little extra research on the home's status.

If the property is in a flood zone, you may pay thousands yearly in additional insurance costs, and you may find it difficult to resell the property. You can read more about flood prevention and insurance at FloodSmart.gov.

Ensure that all renovations have been permitted and approved. "If not, and there is a problem, the city can cite you," DeSimone says.

Check with the local planning department and make sure there aren't any neighbors with plans to build an enormous house or to demolish an existing one, DeSimone suggests. "Any nearby plans or work would normally be known and disclosed by the seller, but not in the case of a foreclosure," he says.

4. Leaving too little time

Short sale and foreclosure homebuyers need to be aware that the sale won't necessarily close as quickly as it would for a traditional home. The short seller's lender must grant approval of either foreclosure terms or a short sale price which is less than the short seller owes. Even so, troubled banks may be overwhelmed with foreclosures and slow to respond.

"Banks are taking huge losses so they are going to do their best to get their money back, get the most amount of money or go after the seller to try to recoup something," DeSimone says. "They aren't just going to let the house go."

Sometimes legal troubles can also influence closing. For more than six months, Steinhorn has waited on one bank-owned property while the bank repeatedly pushes back the close date due to unresolved liens.

Steinhorn isn't moving into his investment property. But costs increase if you must extend your lease, find a storage facility or rent an apartment at the last minute.

If you were to buy this property, could you afford to rent it out for as much as, or less than, your mortgage payment?

What if the home's value drops another 20 percent, will you still feel satisfied with your purchase?

How much money will you have to pour into the property to make it habitable? If the problems are too costly, you might pass on this home purchase.

Kuhn says that sometimes HouseMaster inspectors provide bad news, but homebuyers just won't listen. She says buyers declare, "This is our house and we love this house," despite a broken sewer line, rats in the basement or a collapsed (and rotting) roof.

On the other hand, Kuhn says more buyers are taking off the rose-colored glasses and inspecting the house and neighborhood more thoroughly. A cooler, less-competitive market nixes bidding wars, home-inspection waivers and overextended budgets.

In short, this may be the right time for you to buy a home, especially if you know what you're getting into.

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